Modern day business is built on constant competition and an ever changing landscape, where CEO’s must take risks to survive. Risk-taking is something that happens in everyday business and those that have good results from the risks are given bonuses. What if the CEO received a bonus from good results in the current year and then 3 years down the road that risk had then flipped and the company tanks? Should the CEO be liable?

Well, according to a recent Wall Street Journal article, that very thing is being proposed on Large Firm Wall Street Bankers. The thought is that their bonuses be deferred over four years and any actions that hurt the firms or a financial statement restatement would have a “claw back” affect over a period of seven years. The CEO’s would have to pay back a portion of their bonuses. There is already a form of “claw back” that is in place, but it is less stringent and only goes back about three years. Regulators are presuming that issues arising from the CEO’s decisions usually take more than three years to show up; thus the reason why they are proposing pushing the time limit to seven years. The purpose of the proposition is to combat and prevent another recession by holding CEO’s more accountable.

The issue that has been raised is if this passes, would the CEO’s adjust their pay structure? Would they opt for more stock and salary instead of bonus structure?